The Agriculture Act of 2014 provides farmers with a safety net, but they’ll have to do a bit more preparation to take advantage of new programs, and, as with any change as sweeping as the alterations to farm policy included in this law, a few glitches are emerging as signup opportunities approach.
“Farmers will have to think about the options,” says Joe Outlaw, Texas AgriLife Extension Economist and Co-Director of the Texas A&M Agriculture and Food Policy Center, College Station.
“But producers have plenty of time to gather the information necessary to make decisions,” Outlaw said during the recent Big Country Wheat Conference in Abilene. “No reason to panic.”
He cautioned farmers to make informed decisions, however. “Decisions farmers make on Title I options will last for the life of the farm bill. Also, don’t base decisions on expected payments for this year.”
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He says farmers will separate into two kinds of producers as they explore possibilities in the new farm program. “They will either want to get the maximum government payment or they will want to manage business risk,” he said. “We will offer assistance to both.”
But it is important that growers decide which category they fall in and then choose the best program to meet those goals.
Producers other than cotton farmers have two choices, Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC). Cotton farmers have the Stacked Income Protection Plan (STAX) or the Supplemental Coverage Option (SCO). They can’t use STAX and SCO, but either will supplement an underlying insurance product. SCO is also available for producers selecting PLC.
Outlaw said Texas farmers should take a hard look at SCO. “It’s a big deal. In some cases in the Southwest growers will need it. At least look at it.”
SCO offers growers the option of covering some of the gap between an affordable crop insurance policy and actual production average. He said insurance in Texas is expensive because of weather variability, and most producers can’t afford 85 percent protection. “SCO covers part of the deductible,” he explained. “It starts at 86 percent and covers down to where your individual buy-up insurance coverage begins.”
He said SCO will be available for the 2015 crop “for select states, select counties and select crops.”
It should offer wider coverage in 2016. But that’s one of the glitches in the new program, and one that should be fixed, Outlaw said. “The Farm Service Agency (FSA) doesn’t have the luxury of saying ‘we don’t have enough data for a certain county.’ They get the data. The Risk Management Agency (RMA) is saying they don’t have enough data. That needs to change.”
ARC is questionable for Texas
Outlaw says ARC may not be a good fit for most Texas farmers. “It’s a shallow loss program that pays if your losses occur in a band from 86 percent to 76 percent of the counties’ benchmark revenue, which will leave many Texas producers unprotected for losses below 76 percent.” Texas row crop producers purchase coverage levels around 65 percent which could leave many producers unprotected on losses between 76 and 65 percent. Also, Texas farmers are not likely to update yields because of too many drought years.”
He said PLC provides a price floor and “more protection against low prices.” Outlaw said ARC was developed for Midwest corn and soybean farmers who typically buy 85 percent insurance coverage. Texas farmers, because of higher insurance costs resulting from more variable climate, insure a lower percentage and leave a big gap not covered.
SCO will help bridge that gap with the PLC program but is not available with ARC. “I would be a little worried about ARC for Texas production,” he said.
He also encouraged growers to sign up for SCO, especially since they’ve been given something of a grace period to drop it if they think it doesn’t fit. It could be of interest to wheat farmers preparing to plant the 2015 crop. Producers may sign up now and then decide over the next few months whether to opt out.
Cotton farmers have a direct payment transition program, the Cotton Transition Assistance Program (CTAP), available for the 2014 crop, since they are not covered by STAX until 2015. Signup began in early August and runs through Oct.7. “That’s the last opportunity to sign up,” Outlaw said, “and growers have to sign up.” Payment will be a little more than 5 cents per pound.
He’s also a bit critical of how STAX will be offered the first year. Some counties with cotton production will not be covered. “If I were a cotton farmer in a county not included, I’d be hacked,” he said. “That’s not a good situation because it is really the only safety net program for upland cotton.”